Stocks have risen from the ashes like the Phoenix during the five years following the fall of Lehman Brothers. More importantly, I believe they are set to move even higher during what I would call a “super-cycle” that will commence during 2014.
This is not to say there won’t be one or several corrections in the meanwhile. If the market moves that have occurred when Fed even discusses ending its current monetary policies are any guide, then we’re all but guaranteed some kind of correction when it actually does start tapering. In addition, the market will continue to be skittish in the face of geopolitical crises.
However, the Fed will begin its tapering influence and global political issues will continue to affect the markets in the short term, as such events always have. These aside, I’m convinced that 2014 could be another record year for stocks. Here are just a few reasons why I predict this.
While the fed will take its foot off the gas, it’s not hitting the brakes. It’s hardly a crisis to have the Fed “taper” from $85 billion/month to $60 billion. The market can adjust to this monetary move. Furthermore, while Central Banks may also tighten monetary policy, they will remain extremely supportive.
Corporate earnings are continuing to rise which in turn will drive market appreciation. By the end of 2013, we will see that S&P earnings come in around $112 to $114. That means overall if the S&P rises to approximately 15X earnings that 1,750 is not out of the question.
The bloom is off the bond rose. Money will continue to flood out of fixed rate and annuity investments as interest rates rise and we can expect this money to be transferred to quality equities and dividend paying stocks.
Commodities have peaked and will continue to underperform, which will drive investors seeking returns back to stocks.
There’s little short-term danger of major inflationary pressures as the global economy is still recovering in modest moves.
These are just a few of the reasons I think the stage set for another rise in the S&P 500. While there are no guarantees, a strategy of investing in a portfolio of conservative equities paying qualified dividends such as Cognizant Technologies (CTSH), Apache and Foot Locker, should give investors a real, not mythical, high-quality return.